Laura Suter, director of personal finance at AJ Bell, comments on reports that Jeremy Hunt will cut National Insurance by a further 2% at tomorrow’s Budget (Source: The Times):
“The latest reports drop the heaviest of hints that the chancellor has set his sights firmly on National Insurance cuts as the tax giveaway he wants to hand out in the Budget tomorrow. While nothing is confirmed until he gets up to speak, opting for National Insurance cuts over income tax cuts offers a double-whammy as it is both cheaper and is targeted at workers, as National Insurance isn’t paid by those over state pension age.
“The move will also help to quell some of the claims of generational unfairness as those on the state pension are likely to be handed another meaty increase through the triple-lock. As Jeremy Hunt has already made cuts to National Insurance, he could also point to the overall tax saving for individuals from the combined cuts – offering up a juicier headline to win over voters.
“The starter rate for National Insurance is charged on the band of earnings between £12,570 and £50,270. Cutting the starter rate from the current 10% down to 8% would save employed people earning £35,000 a total of £448.60 a year. For lower earners the saving is smaller, as less of their income falls in the band liable for National Insurance. But for higher earners there’s the potential to save up to £754 a year. If the chancellor instead opts to cut the starter rate for NI by just one percentage point to 9% the savings would be around half: at £124.30 a year for someone on £25,000 up to £377 a year for the highest earners.
“But coupled with the changes already made in the Autumn Statement, combined the moves would save up to £1,508 a year for those earning £50,270 or more. For a more average earner on £35,000 a year the combined changes would still mean a saving of almost £900 a year.”
Self-employed:
“It’s unclear what the government would do with the self-employed rate, were they to cut the employed rate. At the Autumn Statement the chancellor abolished the Class 2 rate for self-employed people – so that’s not a move he can replicate. At the same time he cut the rate for Class 4 National Insurance, also paid by the self-employed – from 9% down to 8%. That move hasn’t even seen the light of day yet, as it doesn’t come into force until the new tax year in April. However, that does leave the door open for a very swift further cut to rates before the next tax year next month.
“Cutting Class 4 contributions by a further percentage point to 7% would save a self-employed worker on £25,000 a year a total of £124.30 in comparison to the 8% they would be paying from April. For a self-employed person on more than £50,270 the saving would be £377. However, combined with the already-announced cut the annual saving of going from a rate of 9% to the potential 7% is up to £754 a year. Once you add in the savings from abolishing Class 2 contributions it makes for a total potential saving of almost £950 a year for a self-employed person.”
